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Turning over a new leaf

Pharma needs to overhaul all areas of the value chain, as placing big bets on a few molecules will no longer suffice

research and developmentDemand for effective medicines is rising: as the population grows and ages, new medical needs emerge and the disease profile of the developing world increasingly resembles that of the developed world. Research conducted by PricewaterhouseCoopers (PwC) suggests that, by 2020, the global pharmaceuticals market could be worth as much as $1.3trn. However, the market share of the US will fall as the emerging seven (E7) countries (Brazil, China, India, Indonesia, Mexico, Russia and Turkey) grow to account for 20 per cent of sales.

Yet the pharmaceutical sector will find it hard to capitalise on the opportunities presented by growing demands for medicines in the developed and developing worlds, unless it can alter the way in which it operates. Boards of major pharma companies will be under increasing scrutiny from key stakeholders eager to know how they will capitalise on E7 growth opportunities.

Pharma also has to resolve the issue of R&D productivity. Over the past decade, the industry's spending on R&D has more than doubled in real terms, yet the number of new medicines launched in 2006 is only two-fifths of the number produced in 1995.

PwC's report Pharma 2020: The Vision, Which Path Will You Take? contends that the industry has reached a pivotal point in its development, and that structural and operational change is required. The traditional strategy of placing big bets on a few molecules, marketing them heavily to GPs and turning them into blockbusters will no longer suffice. Pharma needs to overhaul all areas of its value chain, including sales and marketing. But how will the industry leverage developments in science, technology and infrastructure along with appropriate alliances to succeed in a changing healthcare environment?

Cost pressures

Between 1995 and 2005, the percentage of total corporate spending accounted for by sales and general administration rose from 28.7 per cent to 33.1 per cent, with sales and marketing by far the biggest corporate expense. This increasing expenditure on sales and marketing is a sign of the shortage of innovative and well-differentiated medicines reaching the market and numerous me-too or old products and therapies requiring substantial promotion to gain share of voice and drive sales.

The growing level of promotion has also generated considerable criticism. In a survey of industry stakeholders conducted by the PwC's Health Research Institute, 94 per cent of respondents said that pharmaceutical companies spent too much money on advertising. The arena in which pharma operates will change dramatically over the next 13 years; the industry will have to adapt its sales, marketing, pricing and product strategies to the different needs of new audiences and markets.

Although the growth in the market for pharmaceuticals represents an opportunity for pharma, this very growth represents a threat to the current model.

Over the last 30 years, health expenditure in Organisation for Economic Co-operation and Development (OECD) countries, as a proportion of gross domestic product, has almost doubled to around 10 per cent. At current growth rates this is expected to reach 20 per cent in the US and 15 per cent in the other OECD countries by 2020. This ever-increasing burden on health providers will drive ever greater cost pressure on the pharma industry.

Impact of technology

In response to these cost pressures and a desire to improve healthcare delivery, a growing number of healthcare payers are leveraging developments in technology to build electronic medical record systems which can measure the pharmacoeconomic performance of different medicines. The US aims to develop a national health information network by 2014, while the British system is expected to be operational by 2012.

These technological advances will give healthcare payers the outcomes data they need to determine best medical practice, eschew products that are more expensive or less effective than comparable therapies and pay for treatments based on the outcomes they deliver.

As a consequence of the ever-increasing pressure on cost and the growth of technology and infrastructure around health information and outcomes, primary care doctors will continue to lose control of prescribing decisions in a number of major markets. Healthcare payers will increasingly mandate not only the treatment protocols they must follow, but also the drugs they can prescribe from the formulary. However, this loss of control at individual GP level may be offset at practice level as the primary care sector takes up more services performed currently in the secondary care setting.

Additionally, healthcare delivery will be pushed closer to the patient, with the transfer of some forms of care traditionally provided by primary care moving to the self-care sector. The self-medication sector is also growing, as more and more products that were once available only on prescription are sold over-the-counter (OTC).

In order for self-medication to be managed successfully, patients will require more information and education. As technology and the supporting infrastructure grows, it is quite conceivable that patients will gain greater access to some simple self-diagnosis tools to establish whether they have a condition that will sort itself out without recourse to prescription drugs. This would eliminate a substantial number of consultations, since self-limiting diseases are thought to account for about 85 per cent of all visits to primary care doctors.

Changing environment

The traditional definitions of primary, secondary and self-care are blurring. This will change the way in which pharma and primary and secondary care and patients interface and interact. In so doing the product services portfolio offering of vendors will need to reflect these needs differently than today. Moreover, the way in which products and services are contracted will need to alter thereby changing the ways in which products and services are promoted.

Pharma's sales and marketing model will have to evolve as treatment protocols and self-medication replace individual doctors' prescribing decisions. Its target audience is also becoming more consolidated and the criteria policy-makers and payers use for adopting new medicines are different from those doctors use. As a result, the industry will have to participate much more actively in the dialogue on healthcare funding and work much harder
for its revenue.

The nature of sales will change from the predominant one-to-one selling of products to GPs, to large ticket 'deals' with a number of stakeholders at the protocol definition stage. In other words, the product which pharma sells will have to be redefined to:

  • Target the direct needs of the providers which are the best patient wellbeing and satisfy the continued need for products to be lowcost
  • Enable negotiation on several aspects of a product rather than just pack price; ultimately the pill may become the smallest revenue generating part of a much larger heathcare package.

Recent developments such as the pay-for-performance arrangement for Velcade and the Office of Fair Trading report into Pharmaceutical Pricing Regulation Scheme are just the beginning of a fundamental re-alignment of the needs of the provider with the product and services sold by the pharma industry.

This will fundamentally affect the manner in which pharmaceuticals are sold and marketed as the performance of products will be evident without going through the sales and marketing process.

Shift in product offering

The stakes will get steadily higher and the success with which pharmaceutical companies can make such 'big ticket' sales will depend on their ability to differentiate their medicines from those of their rivals, demonstrate value for money and contribute to the overall improvement of human health.

Many firms will seek to enhance their offerings by providing and integrating services, such as compliance monitoring, home delivery, patient and doctor education and support, and disease management. Although we are seeing nascent attempts at a number of these, further developments in, and the uptake of, technology will allow these to be connected to the patient in a more successful manner.

These integrated services not only redefine the 'product' as a package of care which better fits the needs of the providers, but also allows pharma companies the latitude to negotiate around many different aspects of the package. The success of this vertical and horizontal integration of services will require huge effort in seeking and building the right alliances and managing strategically critical mergers and acquisitions.

Where treatment is migrating from the doctor to ancillary staff or self-care, for example, patients will require more comprehensive information about the medicines they take, more advice and more surveillance. Where treatment is migrating from the hospital to the primary care, they will require new services such as home delivery. The pharma industry should be focusing on the provision of a full range of products and services spanning the healthcare spectrum rather than therapies for different sectors of the healthcare market, or seeking other ways in which to make money as healthcare delivery alters.

Some companies may even band together to sell 'bundles' of medicines which are price capitated and include branded treatments, generics and OTC products, for specific patient segments. The financial services industry already operates in
this fashion, with 'tied' financial advisers who can, in certain circumstances, market products from other providers.

One consequence may be a new role for beleaguered contract sales organisations whose reps may evolve into disease specialists contracted by groups of firms to provide support for doctors as part of the overall package of care.

Whether or not different pharmaceutical companies decide to join forces, the consolidation of the sales and marketing process should enable the industry to reduce its costs and redeploy the money it saves in further R&D or the provision of new services as part of the overall care package.

Changing audience

Patients will also play a bigger part in the sales and marketing equation as they foot an increasing share of their own healthcare costs and become more engaged in their own healthcare provision. This could be directly through self-care or health plan choices, or indirectly as influencers of policy and protocol through ever-growing advocacy and pressure groups. Many pharmaceutical companies will invest more effort in reaching patients, and thegrowing emphasis on promoting wellness rather than managing illness will provide them with new opportunities for doing so.

Healthcare payers will increasingly reward patients who have healthy habits and penalise those with unhealthy ones. The treatment plan costs, or premium co-pay contribution by the individual, may be strongly influenced by their relative healthiness or wellbeing. As ever, to keep healthcare costs low, compliance with treatment regimes and adherence to treatment and formulary protocols will be demanded by the payer. Pharma can play a major role in helping patients by providing products and services that encourage healthy behaviour and compliance.

It can also offer support in the form of much better and more comprehensive product literature. With the de-skilling of many elements of primary care and the transfer of a growing number of medicines (some of them quite potent) to OTC status, patients will need clear, accurate and unbiased information about the treatments they take and how best to manage their conditions, if they have a chronic disease. Again, pharma can make a valuable contribution by providing access to such information either in print or online, and in moving closer to patients, it can begin to rebuild the esteem in which it was formerly held.

Underlying the changes in the healthcare environment are the developments in the technology of monitoring, managing and informing patients and the infrastructure which connects them to the providers, payers and pharma. This technology and connected-ness is fuelling the cost-driven threat to pharma's current business model but also offers the opportunity to develop a new model.

Most notably, as treatment protocols and adherence to formularies replace more individual prescribing decisions and technology improves the ability to diagnose conditions, there is little point in sending out a large salesforce to influence primary care practitioners who do not choose which drugs they prescribe.

End of an era

The changes in the marketplace will erode the traditional model for selling medicines. Pharmaceutical companies will replace their large sales teams with key account managers and specialist advisers capable of managing the tender and negotiation processes. There will be far fewer direct sales people in markets that are currently saturated with sales staff. Their roles will evolve into either being part of an account selling team or to be part of the package that is sold providing support for doctors and patients in their territory.

By 2020, the context in which pharma operates will be very different from that which prevails today. If the industry is to thrive in this new environment, it will have to make sweeping changes to sales and marketing processes. Getting closer to partners, providers and patients will be one of the keys to success ñ the greatest barrier to this being the current reputation of pharma.

Winners will not only be those with the most innovative products, but those who can build their reputation and generate alliances and partnerships to both create and deliver the best care for patients at the right cost to the health economy. The journey needs to start now and the right path has to be chosen.

The Author:
Dr Steve Arlington is global advisory leader and Dr Nick Jones is senior adviser in pharmaceuticals at PricewaterhouseCoopers

9th August 2007


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